Collateralized Debt Obligation Squared - CDO-Squared

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DEFINITION of 'Collateralized Debt Obligation Squared - CDO-Squared'

A special purpose vehicle (SPV) with securitization payments in the form of tranches. A collateralized debt obligation squared (CDO-squared) is backed by a pool of collateralized debt obligation (CDO) tranches.

This is identical to a CDO except for the assets securing the obligation. Unlike the CDO, which is backed by a pool of bonds, loans and other credit instruments; CDO-squared arrangements are backed by CDO tranches. CDO-squared allows the banks to resell the credit risk that they have taken in CDOs.